Development of internal models (DFA models)

Over the last two decades, improvements in IT have made it possible to use one single, integrated computer model to simulate all the major operational functions of an insurer.

These models allow the management to take enlighten strategic decisions by giving them a better understanding of the risks they face and of their interrelationship, and therefore by gaining insight into the full range of the consequences of these decisions.

The development of such models, also called "Dynamic Financial Analysis" models in the actuarial jargon or "Internal Models" in the Solvency II vocabulary, encompasses the following steps:

• Identification and analysis of the risks faced by the insurer
• Building of an economic scenarios generator
• Development of the model of projection of cash-flows
• Choice of a measure of risk and of a level of confidence and analysis of the outputs

AT Global has a wide range of experience in the design and development of these models. There is of course also an important step of validation of the model and of the inputs, which is treated separately further in this document.

Development of internal models (DFA models)